Malaysian Government to Standardize Minimum Wage at RM 1,050

As of January 2019, the minimum monthly wage in Malaysia will be RM 1,050 per month or RM 5.05 per hour. In a statement issued by the Prime Minister’s office, the set increase in the minimum wage comes as a result of the country’s economic situation and the figure that was decided upon was proposed by the National Wage Consultative Council.

Before settling on the new changes taking effect next year, the government had wanted to continuously increase the minimum wage to RM 1,050 monthly across the nation all through the year. However, citing reasons that highlighted the fact that a drastic increase in salary would be problematic for industries and would have a radical effect on the competitiveness of the nation, they decided to gradually increase the salary in the years to come.

The announcement was met with mixed reviews, there was evident support from employers but grave disappointment from everyone else.

Reactions to the Standardization

Employers

Initially, employers represented by bodies and organizations like the Federation of Malaysian Manufacturers (FMM) wanted the government to maintain the current minimum wage. Their reason for wanting this was that any changes would lead to a hefty increase in costs for doing business. Once the decision was made to gradually increase the minimum wage, they now deem the new figure as reasonable.

Employees

Coming to the defense of employees, the Malaysian Trade Union Congress (MTUC) considered the set increase of the minimum wage by RM 50 to be too low and described it as “beggarly”. For the MTUC, anything less than RM 1,500 is unacceptable as even migrant workers in the construction sector will not accept anything less than RM 70 a day. Fifteen days of work is all it takes for such a migrant worker to get to RM 1,050 a month.

Why the Government Needs to Set the Minimum Wage Higher Than RM 1,050

According to an annual report put together by Bank Negara, the costs of living in Malaysia have significantly increased. A single adult needs at least RM 2,700 to live a decent life in Kuala Lumpur. RM 4,500 is the equivalent for a couple and while not exactly double, it is still far more than if the couple individually only earned a RM 1,050 minimum wage.

With an increased minimum wage, the economy is also believed to potentially benefit from the following:

A significant boost in purchasing power: The income boost for the bottom half of society will stimulate national economic growth and benefit everyone else due to increased economic activity.

Reduce dependence on foreign labor: A higher minimum wage will make low-skilled foreign labor less attractive and encourage the local labor market to migrate towards better-paying jobs that require more skill and technology. The increased wage will further rationalize and reduce the total number of foreign workers in Malaysia from six million to four million. Consequently, this will create a more positive “supply and demand” imbalance that should naturally translate into higher wages.

A significant increase in productivity: With a higher minimum wage, employers will be more incentivized to increase the efficiency of their operations by increasing the productivity of their employees which is an essential pre-requisite to higher wages. More so, the need to innovate will also be more pressing as companies will find it more cost-effective to invest in the latest equipment and technologies instead of just throwing increasingly expensive labor towards a task.

Majlis Tindakan Ekonomi Melayu Bersatu’s (MTEM) Recommendations to the Government

Majlis Tindakan Ekonomi Melayu (MTEM) has pondered and tackled the question on what is a fair minimum wage for Malaysia. As a start, they began comparing Malaysia with Poland and Turkey as these two economies are similar to Malaysia in terms of GDP (nominal) per capita. The per capita incomes for Malaysia, Poland, and Turkey are US$9,813 (RM 40.594), US$13,823 and US$10,512, respectively. Of course, it comes as no surprise that the minimum wages in Poland and Turkey are higher than in Malaysia. What is surprising is the difference in the minimum wages of the three countries. In Poland and Turkey, after converting to Ringgit, their minimum wages are RM 15.49 and RM 8.26 an hour, respectively.

With this information at hand, MTEM came up with the following recommendations directed at the government to help shore up Malaysia’s economy:

A stratified minimum wage structure to account for different costs of living across different areas in Malaysia. Cities with a higher cost of living, such as Kuala Lumpur, should have a higher minimum wage to compensate for the higher cost of living.

The setting of a minimum wage must also consider the realities of a variety of industrial sectors. Sectors such as agriculture and especially the palm oil industry may require a lower minimum wage as the vast majority of their labor force are migrant workers.

The government should offer tax incentives for small and micro businesses who can pay the minimum wage as such enterprises may not have a sufficiently large revenue base to sustain the imposition of a higher minimum wage.

Teenagers ought to be excluded from the minimum wage. For the very young, gaining work experience is valuable for their long-term career development and employers may find them an attractive hire for jobs that require minimal skills and zero experience.

Final Thoughts

A higher and fairer minimum wage is an integral part of pushing Malaysia towards a high-income nation and will require intense discussion and debate between employers, employees, civil societies and the government.

It is understandable that the new government needs to consider the current dire economic circumstances like the national debt, forex volatility and the national dependency on foreign labor. However, the end result must be one that is win-win for all segments of society. As it is, even the new and improved minimum wage of RM1,050 is too low and cannot be considered a benefit for the bottom half of society.